Housing Bubble Will Be ‘Dearly Missed’ In Orange County
Jon Lansner at the Orange County Register took a look at what a soft landing might mean for that housing bubble. “The bubble doesn’t have to burst in spectacular fashion for housing to inflict economic pain. The much-discussed ’soft landing’ may create heartburn in the business climate.”
“Land profits aren’t just for homebuilders or real estate investors. Everyday folks have reaped rewards in several ways. Most notable: Borrowing against the profits in their home. For example, 72,000 Orange Countians last year took out $6.1 billion worth of home-equity loans, according to DataQuick. Curiously, and a possible sign of a slowing real estate market, that’s down from 88,500 equity loans worth $7.2 billion in 2004.”
“The bond traders at Pimco don’t think home prices will collapse, well, outside of a few overheated markets, they think shrinking housing profits will have far-flung economic consequences. A recent economic outlook by Pimco’s chief business-climate watcher, Paul McCulley, essentially said housing will drive the national picture.”
“And, he said, ‘property market euphoria will not go quickly and quietly into the good night, but rather on the installment plan, with much screaming of denial. Collectively, we believe the end of denial is rapidly approaching. But none of us can say with confidence whether the end will come in the next three weeks, three months or three quarters. But the end of the housing boom will come soon, we think, and when it does, sales volume in the property market will reverse wickedly.’”
“Let’s not overlook the financial clout that the real estate business has in this town. By my math, real estate of all sorts employed 253,000 in the fourth quarter of 2005. That’s up almost 80 percent since 1995. The boom turned the real estate community, so to speak, into 17 percent of all workers employed in Orange County.”
“The last time this town got into serious economic trouble, manufacturers took it on the chin. In the five years ended in the first quarter of 1995, local hard-goods factories lost 41,300 workers, a 24 percent drop. Many observers suggest that this factory rout, propelled by harsh cuts in Pentagon spending, was a critical cause of local housing’s woes. From 1990 to 1995, the median price of an Orange County home fell by 10 percent to $194,000.”
“But real estate job losses played a significant role, too. From 1990 to 1995, local real estate lost 29,700, nearly three-quarters the loss at local factories.”
“Today, real estate employs 110,000 more folks than it did near the bottom of the last housing cycle. That’s roughly one in four jobs added to the overall economy since those ugly days. If real estate simply stabilizes at current levels of activity, the loss of the wealth created by home appreciation and related employment growth will be dearly missed.”
Wow. 6.1 billion. Pull out the ol’ handy dandy calculator. A whopping $85,000 per household. And people wonder why are concerned if the housing ATM runs out of steam.
Those OC homes earn their owners a pretty hefty paycheck! No wonder the area residents are feeling so upbeat about the future…
Those juicy HELOCs are recourse loans in CA.
does that figure include people who did a piggy back heloc on their initial purchase?
“Collectively, we believe the end of denial is rapidly approaching. But none of us can say with confidence whether the end will come in the next three weeks, three months or three quarters.”
The markets agree with them. Look at all the red numbers on this marketwatch summary on the day following BB’s speech; the green numbers (10-yr & 30-yr bond) show an increase in yields, which means that bonds dropped today as well. Traders are starting to fear BB represents the return of Volcker, not Miller, and the risk premium is coming back with a vengeance. It is a good time to be a saver, IMO (save when everybody is buying, buy when everybody is saving…).
http://www.marketwatch.com/tools/marketsummary/default.asp?siteid=mktw
I follow the LIBOR based rates on a daily basis for a customer/client. WOW. These rates have been moving up on a daily basis for the last couple of years. All LIBOR rates are nearly above 5.00%. 2 years ago these rates were 1% or so. Most short-term financing is tied to these LIBOR rates and the market is getting very expensive for this type of credit.
LIBOR 1 month 4.80
LIBOR 2 months 4.86438
LIBOR 3 months 4.94
LIBOR 6 months 5.05
LIBOR 12 months 5.14375
“Traders are starting to fear BB represents the return of Volcker, not Miller, and the risk premium is coming back with a vengeance.”
GetStucco - well said!
That will be one large group of surprised FBers. Of course, many others around the country. But OC will stand out due to large numbers and high housing costs. BRING ON THE CALIFORNIA CRASH, so I will have vindication for being a lone wolf for so long.
you’re not alone, my friend
I can’t wait too. These new rates will crush the new guys.
OT but fun story:
We tried to buy a new home from Richmond American here in Simi Valley, California this past Sunday. 3br 2900sqft. Offered 525-605k! Denied!
Gotta try…. Of the 10 homes complete on the block, only two are lived in, all the rest are FS and 3 are buy the builder and the rest are poor folks who paid 1.1-1.4 last spring. Flippers too. Empty and FSBO. Oh no for them! The builder just undercut them buy 250k last weekend alone by my best guess.
The home we liked goes like this: They asked 1.1 last spring, now built with UPGRADES GALORE, but given back and EMPTY now. Two weeks ago the price was
998k, then last Trursday, 949, then this Sunday 150k off!!! NOT GOOD ENOUGH FOR US. Is 525k too high now?
This is Ventura County popping!!!!!! The crash has come to California.
Stay Tuned!
The OC machine is sooo dependent on these low rates. I agree with John L. that even a “soft” landing will cause serious pain as the volume part of these business will fall of a cliff, even if prices are stable.
The Economist agrees with you.
“http://www.economist.com/finance/displayStory.cfm?story_id=5587046″>
http://www.economist.com/finance/displayStory.cfm?story_id=5587046
From the Economist article posted above:
“Ian Morris, an economist with HSBC bank, calculates that about half of America’s housing market is experiencing a bubble, with prices overvalued by almost 40% even after taking account of low interest rates. Homes in California and Washington, DC, are overvalued by 50%.”
P.S. That means Californians who currently do not own homes and want to retire with a positive net worth should wait for prices to adjust downwards by > 33% before buying…
P.S. That means Californians who currently do not own homes and want to retire with a positive net worth should wait for prices to adjust downwards by > 33% before buying…Exactly! And, having witnessed previous Los Angeles County bubbles (especially the 70s and 90s), I will probably be able to pay cold calculated cash for my home. I saw people do it during these bubbles, and I don’t see why I can’t either! It pays to be addicted to saving!!!
Mary
Sorry about the script…I’ll figure it out eventually!
Mary
From Zip Realty…a property in 92603
ZipRealty Price Track:
Listed: 10/07/05
Price Reduced: 11/22/05 — $935,000 to $925,000
Price Reduced: 02/12/06 — $930,000 to $925,000
Price Reduced: 03/21/06 — $925,000 to $924,000
Days on Market: 165
Nice to reduce by $1000…cost per month. $5000
It may not be fun to say “I told you so”, but I will also say it with glee because I took a lot of guff from the bulls for too long. And I will finally be proved right.
Are you Canadian?
Once again, I think that JL is implying what he cannot say overtly:prices in OC are going to come down.
I agree.
Jon Lansner is a reasonable man with a backbone.
Unlike the famous rest of the RE industrial complex that only lurk here.
I still think it’s going to be a hard landing . Higher interest rates , tight money market ,investors backing off , maybe saving accounts being a better investment than slowly declining real estate . I see massive inventory in most markets for awhile , than a quick decrease in prices , than a slower further decrease in prices .
Agreed. I’m just saying that Lanser cannot overtly say the same thing without jeopordizing his job and potentially starting a panic in OC. He has to be more nuanced and still reference the “soft landing”, meanwhile, he’s reporting the exact conditions that will result in a hard landing.
Yes. The bubble just got to big. Nobody wants to trigger panic selling . I bought a place in 2005 , so, I have already accepted the fact that I will loose some money on it . I bought it to live in long term so thats my saving grace that I dont need to sell .
can someone tell me last time in Cali did housing start to soften before or after the jobs loses? by soften I mean what we’re seeing now- less sales and exploding inventory.
In the late 70’s it was a rather abrupt stop to any activity when interest rates climbed to between 15-18% .Sellers didnt bother putting the houses on the market. I think the prices went down quickly . Prior to this the boom wasnt as big as this one was and it was triggered by a lumber price increase .
The lower priced homes sold better than the higher priced homes in the late 70″s early 80″s . Alot of seller carry-back financing and assuming of sellers old loans by buyers ,
but , it was dead as a door knob .
In CA from 1979 to 1983, nominal prices only fell 10 to 15%. Real prices fell by 30 to 40% because inflation was going wild. And that’s why Fed Chairman Volker hit the brakes.
Mr. Law said:
“last time in Cali did housing start to soften before or after the jobs loses?”
Housing slowed; then recession.
After job losses if I remember correctly
The Ca, earthquake pushed down house prices to in the 90″s
It all kind of happened simultaneously. Home prices were skyrocketing in the late 80’s, but in 1989 lots of folks in SoCal (San Diego specifically) started losing jobs as numerous companies started moving their operations to Arizona, Oklahoma, etc. Why?…because housing was too expensive for their employees (along with tax issues and general cost of doing business in CA). These other states actively courted these firms with tax incentives etc. The big earthquake was in Oct 89, but I don’t think that affected RE prices in San Diego (my area) or the rest of CA. Housing prices started softening after the job losses.
I didn’t live in San Diego back in the 90s, but I’ve been told that the “main” reason for the housing decline was loss of aerospace industry jobs (reduced gov’t spending on defense with the end of the Cold War and all…) In fact, that’s why I have been told that the real estate bubble won’t “pop” this time - there’s no large job loss to precipitate necessary selling (which would precipitate price decreases).
My reply has been to point out the growth in real estate, lending, and construction-related jobs, and how that sector is going to hit the shitter as demand dries and interest rates rise. In fact, I have a couple friendly wagers out with friends that we’ll see at least a 33% difference in aboslute, median price between the height of the bubble and sometime before the end of this decade.
“that’s down from 88,500 equity loans worth $7.2 billion in 2004.”
Maybe the other 12,500 sold out, paid off their HELOC and bought in Las ‘Vegas or Phoenix.
I see renting in the current market as a profitable arbitrage opportunity. Arbitrage opportunities arise when market inefficiencies exist: apples are selling downtown for $1/lb and uptown for $1.50/lb An arbitrageur can make a risk-free profit of fifty cents per pound by buying downtown and selling uptown.
The same can be said of the rental market. In an efficient market, the cost of renting closely approximates the cost of owning, with some nominal premium on ownership for tax benefits, pride of ownership, etc. However, when the price of ownership deviates from that of renting by as much as 100% or more, there’s an opportunity to profit from the price imbalance. My rental unit costs $2300 to rent and would cost approximately $4500 to own. My landlord is actually paying me roughly $2000/mo to live here (allowing for an ownership premium) by continuing to rent the unit rather than selling it out from under me (yes, he bought the unit for much less than the current going-rate, but he incurs an opportunity cost by not selling for a profit and investing the proceeds elsewhere). I take that $2000/mo and invest it in the stock market, where the long-term gains are much better than in real estate. It’s really a great opportunity. Where else can you get $2000/mo risk free just by occupying a building?
I am with you, it’s also nice to live in a neighborhood i could not ever afford to buy in. Eeeee, i c Costa Mesa ziprealty up way over 300, and one in five Price Reduced…
It’s great that JL is writing these articles. It will hopefully wake up all the OC folks who think things can’t go down here because of lack of land and more people than homes. I think the end of the housing ATM will create a lot issues ($85K per household not there anymore…ouch!), but when you combine that with the job losses it’s going to be ugly. These are not minimum wage jobs we are talking about.
So, using JL’s numbers, let’s assume that 50% of the new jobs added in real estate since the last downturn go away, that’s 55,000 jobs. I think it’s safe to say another 15,000 jobs in non real-estate related fields could easily be lost. This would add up to 70,000 jobs, which is the same amount that was lost in 1990-1995. Since this run-up in prices has lasted twice as long and has gone up about twice as much as the last run-up through 89-90, it could be argued the downside will be more than last time. Is JL from the register right about only a 10% decline in median price from 90-95? This seems low to me even without taking inflation into account.
Anyone have the annual inflation avg and 30 yr mortgage avg for each of the years 90-95? It would be interesting to see how those numbers looked during last downturn and if our current situation and trend with these numbers would indicate support or a drag on housing relative to 90-95.
The other thing I wonder is if JL’s numbers include construction/home improvement contractors. If they don’t, then the total job loss number is going to be much worse.
I purchased a condo in San Diego at the top of the market in 1990 for $104k. By 1995 it would sell for about $80k. That’s about a 25% decline without inflation, and about a 40% drop taking inflation into account.
Even if you assume condos dropped more due to a larger oversupply in the low end, real estate in Southern California dropped much more than 10% from 90-95.
Townhomes in Huntington Beach that sold for $329,000 back in 1989 bottom’d out at $225,000 in late 1995. That is a 32% drop. I thought I got a good deal in 1992 at $245,000 on a bank repo but was forced to move in early 1995 and had to sell for $232,000. To make matters worse some joker named Bob Citron bet all the OC tax money on some risky investments and OC gov’t almost went broke. Ah yes, those were the days.
Try 125%, not 50%. You have to figure all RE jobs created during the boom would disappear, plus part of those pre-existing due to cannabilization of future sales. Also, those persons that remain in RE will be making less than what they did before the boom.
I owned the largest D model in Windwood in Irvine in 1989. Bought at $254,000. By 1995 this same unit sold for $195,000. That is down 23%. I think his figures are way off if we checked the county records.
He can’t be right about that number (10%). Funny you’re in Laguna Beach, I bought a Laguna house with a killer white-water view in ‘95 for $500,000 from a guy who paid $975,000 in ‘90. That’s a 49% NOMINAL decrease in price. The REAL decrease would have been better than 60%.
It seems like I meet people everyday who are convinced that the “high end” never drops. I can personally attest to the fact that very often the high end drops much more than the “other” ends.
I sold that Laguna house in 2000 and bought a 4800 sq ft custom spec home on the golf course in Coto de Caza for 1.15. Sold that one in August (after 8 months on the mkt) for 1.7 to a 20 y/o mortgage broker. He put 5% down and option-armed the rest.
He told me he had been making $50k/month. At the time, he had 4 rentals that ALL had big negative cashflows (2 of them were actually empty). Since I told him I was gonna rent for a while, he tried like hell to get me to rent one of them. 3 days after he moved in, I was back picking up some stuff from the garage and he had a brand new H2 in the driveway. UFB.
OC and all of Cali is SO SCREWED. Part of me feels vindicated for all the smart-ass remarks I’ve taken over the last year for bailing and renting. But a bigger part of me feels bad for the pain that’s coming. Even if these people ARE greedy and stupid, it’s a tragedy that their children are gonna have to suffer.
if you invest in the money you make renting in the market you might as well just put that money into a house. stocks fall farther than RE in a downturn according to the IMF asset bubble study.
But the long term gains are much greater in stocks. Warren Buffet didn’t get rich in real estate. In any event, I didn’t mean for this to be a stock market pitch — take your investment of choice.
and I assume buffet didn’t get rich buying overpriced stocks. stocks are overvalued, they’ll fall further than stocks. why would I buy when they’ll be worth less in 2-3 years?
sorry, I meant stocks will fall more than houses.
There are many stocks which aren’t overvalued right now.
like what sectors?
My stock mkt objectives right now are:
1. Non-US dollar
2. Totally unrelated to the US consumer
3. Raw-materials
4. Energy
5. Precious metals
6. High dividends and Low PE ratios
Get your money out of the dollar and into overseas, conservative, established, high-dividend paying companies and you’ll be able to maintain global purchasing power AND earn a nice return over the next 5 years of meltdown here in the US.
If you can read a ballance sheet and do your research it is not difficult to make money in the market long term.
I agree, dennis. The stock market is just as prone to foolish speculation as any other market, but for disciplined long-term investors. John Law makes a good point that many stocks are now overvalued (particularly those like Google), but plenty of stocks trade at a reasonable value relative to their growth prospects. My favorite stock investing resource is The Motley Fool.
Better yet, buy a house, then use your home equity gains to gamble in the stock market. Maybe the Greenspan put will morph into the Bernanke put, and you can win big by going double-or-nothing
Better yet - buy a house, learn to count cards, and use the equity gains on the house to “Bring Down the House” in Vegas.
IMO, once the housing ATM wells dry up gaming stocks wil stumble. Be reaady to short online gambling companies like party gaming and large companies like Harrahs, Boyd gaming, Mandalay Bay group, MGM, etc etc…
Hard landing? Try “nuclear bunker buster” wherein the economy drills several hundred feet below ground.
Last year Stephen Roach told Morgan Stanley’s most select group of clients to expect “economic armageddon”. I have yet to see anything that would prove him wrong.
this is what baffles me regarding the “soft landing” scenario. the economy has been reliant upon equity stripping for its well-being. given that most buyers within the past few years have utilized 0% to 10% down financing. whatever was put down was later extracted via HELOCs.
i think mr. roach will be proven correct. perhaps the scariest thing is that most “investors” are pricing the most speculative types of mortgages based on historic loss experiences, which hasn’t happened because price appreciation enabled people to refi out of financial trouble. that gig is up and i believe the holders of this mortgage debt are going to get schooled in loss rates and collateral integrity.
Methinks you may have shined a bright light on the unkindness referenced in the following statement:
“This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums.”
http://delong.typepad.com/sdj/2005/08/edmund_andrews_.html
what was his timeframe?
A strong economy?
So in 2004-05 150,000 families pumped an additional $13.3b into the economy? When this stops this year each person in OC will be spending $4300 less EACH. That’s cars, music, clothes, iPods, fingernail art, jet skis and Starbucks. How are they gonna avoid an implosion? Even if housing stays flat (snort) the ripple effects add up to a tsunami. That $4300 less per person is the tide running out to sea. We all know what happens next.
I liked the way the Financial Times put it today in an editorial - the housing bubble is like a bicycle, it has to keep going at speed to stop from falling over
That explains the record pace of US home construction, just at the moment the buyers went on strike…
wow. people are stretched pretty thin.
“Other Bostonians are under similar pressures. Fully 27.1 percent of the city’s homeowners with a mortgage spent at least half their gross income on housing in 2004, according to the latest census figures available. Those costs, which include utilities and insurance as well as mortgage payments, were more than double the national rate of 11.7 percent and topped New York (25.9 percent), Los Angeles (26.5), San Francisco (20.4), and Chicago (20.3). Of the 25 biggest cities, only Miami had a higher rate (35.8 percent).”
This is going to sound old fashion but in the early 70’s Lenders tried to keep housing costs at no more than about 25% of gross income .
I think you have it backwards, though — the REAL cost ofthe place is reflected in the rent you pay, not the temporarily inflated sale price. You’re not getting an arbitrage opportunity, rather, by not buying a similar home, you are avoiding being the sucker counterparty to someone’s “short” play.
Yeah, it really is a “short” play (i.e. bigger fool). Sell high and buy back low.
You can make good money during a stock freefall. Bulls make money, bears make money. Pigs get slaughtered.
You just have to buy (and sell!) the right stocks at the right time.
Your point is valid, but I look at it this way: For simplicity, let’s say the landlord owns the property outright. He has an asset that he could presumably sell for $650,000. He could take that $650,000 and invest it in something that yields 8% (not a difficult return to achieve). That would pay him $52,000 per year or $4333/mo (one could argue that 8% is not a risk-free return, but holding real estate is not risk-free either — prices could very well decline). Instead, he keeps the asset and rents it to me for $2300/mo. If we say that the property today is equivalent to $650,000 (the going rate for similar units), then I have the use of $650,000 for $2300/mo. Your point is well taken that this is a temporary situation and the asset price will eventually fall, at which point the price imbalance could disappear entirely and the arbitrage opportunity would vanish.
I agree. If you are paying “fair market rent” are you really saving anything on a real basis? Yes, assuming you were not stupid enough to wildly overpay like your landlord, I don’t see the sum gain you are getting. LL is losing his shirt. You, however, are merely paying market.
After the Lansner article today, the Bernanke announcement, and the obviously dead ‘Spring Bounce’ we have not- nor will ever see…
…I believe I just felt an earthquake here in the OC.
A financial earthquake.
Nice article, Jon.
Has anyone else had difficulties with the OCR online? I can’t get past the home page for some reason. Hmmmm..
Real estate jobs will go away at a significantly higher rate than they did during the last downturn. Now we have the Internet, zillow.com, ziprealty, NETWORKED DATABASES, which basically provide 80% of the value provided by a Realtor(tm) during the 1980 and 1989 bubble implosions (I think OC prices dropped by more than 10% during each of those, btw). I can now fly to open houses via google Earth, see exact neighborhood and street layouts, get a Zestimate (and correct it based on market knowledge), find all recent sales, look up the local schools online, and narrow the # of open houses I visit substantially before ever getting in my car or allowing myself to be driven around in a luxury SUV by Buffy, the Realtor(tm). I suspect many or most Realtor(tm) jobs will go the way of travel agent jobs in the 1990s and much of the title/insurance/mortgage processing industry will consolidate during the drop in share prices of companies like Ameriquest, WaMu, and CFC that will inevitably follow the recently begun drop-off in financing activity. This is what most industries do–get fat and inefficient during times of high profit and then consolidate and trim when share prices fall. Of course, some of the slimier ones, like OC’s Ameriquest, might not survive the congressional inquiries on upcoming the real estate implosion.
I used to work for one of the aforementioned companies as an analyst, and I know of yet another factor that predicts reduced finance industry jobs. All the major business initiatives in my group included moving groups and even entire operational centers to cheaper labor markets. You just can’t get too many productive and happy cubicle cogs to do the dullest paper shuffling jobs in the world in places where their $15/hour salary will NEVER buy them a decent lifestyle or even get drunk enough to make it through another hopeless weekend. Now that broadband telecommunications means you can have face to face contact with workers who can have a decent lifestyle on this wage in other places from Indiana to India, you don’t have to get your upper management to move to awful places, but you can reduce your exposure to expensive labor markets/high workers’ comp costs, etc. I used to dismiss outsourcing as only impacting the lowest wage production jobs, but I came to find that the average worker in the aforementioned places is better educated and works harder than people I worked with who were unfortunate products of LA Unified and the like and who were generally burned out from their hour long commute. The future of job markets related to all labor intensive industries in expensive places is in doubt.
So your take would mean its going to be really bad for California in general with housing ,employment , especially in the yuppie
upper class .
That’s been something that I have considered to be on the horizon for quite some time. If you think about it, LA.OC… with all of its operational expense, has priced itself out of usefulness. That should translate into MUCH lower demand for housing down the road and may leave any recovery in RE after the inevitable crash IN DOUBT.
Well said!!!
You nailed it! I agree completely. I plan to relocate & buy a home in San Antonio in the summer of 2007. I’ve already located a realtor there who expects you to do your own research, drive yourself through the neighborhoods, etc. and figure out which houses you actually want to get into (the way I want to do it). Once you’ve done that, you hook up with him to get into and tour the houses you designate. When you buy he splits the commision with you.
That HELOCs are becoming harder to get is a given. But what isn’t discussed yet is the effect of falling comps on existing HELOCs. Any savvy lender should have a clause buried somewhere in the contract that gives it the right to freeze the HELOC limit at a lower level than initially agreed, if comps in the neighborhood drop to the point the homeborrower has negative equity. The really bright lenders would have given the opportunity to “call” the negative equity amount, to boot. I wonder if this is the next chapter, perhaps blowing up before the re-sets dominate the headlines.
You should of designed the loan , what were they thinking .
This would be the functional equivalent of a stockbroker’s margin “call” to a client, in which equities (stock/bonds) must be sold in a declining market to cover the amount borrowed by the client from the broker.
Extensive buying on margin was a major factor in the stock market crash of ‘29. I’m not sure it there won’t be a similar effect with the bursting of the housing bubble. Ain’t leverage grand?
Hey Chip - the same thing occurred to me re: reducing or canceling lines of equity as prices fall. I even asked the Branch Mgr about this and got a BLANK STARE. I’ve lined-up as many as possible so that I have $$$ available when the dust settles.
HEAD’S UP:
ABC News Tonight is doing a series on The Housing Bubble in a few minutes!
can i get a podcast of that?
Missed it….what did they say?
Test
Test
:b :
ABC News just blew my mind.
Everything we’ve been talking about here…finally ended up there.
They talked about ARM Resets, foreclosures doubling, etc.
It’s a series, everyone. That means it will be on again tomorrow night!
AND IT’S CALLED ‘THE HOUSING BUBBLE- BOOM OR BUST’!
IS IT CHRISTMAS ALREADY!
YEAHHHHHHHHHHH!
World news tonight has enough viewers to make this a turning point. It’ll take a major network like this to steer the idiots. I just hope they don’t sugar coat it in the subsequent series.
I’m a homeowner and commercial property owner and I still want this thing to end in equilibrium.
Auction,
Good Eye! Can you write what channel + time it will be on tomorrow?? Wished I caught it tonight… don’t want to miss it tomorrow.
SB BB
SB BB…
It will be on whatever your ABC station is.
In LA and Orange County, that’s Channel 7.
Not sure what ABC is in SB.
Should be on at 6:30pm on World News Tonight!
Thanks Amigo,
Your a good man.
Time to add WNT to the ol’ TIVO (at least for this week).
I’m giving up. Ben’s blog doesn’t take all the comments I post.
Tom- I see your comments.
By the way, ‘The Housing Bubble- Boom or Bust?’ will be on ABC World News Tonight- you know, the one at 6:30pm PST, again tomorrow night.
I think by ’series’ they mean they will have one installment each night.
Was there one last night? If so, does anyone know what it was about?
At least, that’s what they said, when they said ’series. I just wanted to clarify that. They have a lot of shows.
This is the story that ran…with the ‘Housing Bubble’ headline instead of the one here…
http://www.abcnews.go.com/Business/story?id=1750615&page=1
“Not Unique
Heidi’s situation is not unique. She is one of millions of Americans who took out ARMs to purchase a home during the recent housing boom.”
Reading between the lines of that sentence, I guess the ABC World News Tonight writers would agree with some of us posters that the boom has already turned to bust…
This is alot better than the one they did on Good Morning America two weeks ago.
In that show they invited barbara c* a realtor from NewYork, she went on blah, blah about home being place to grow family, bring up kids…. not mention of income to support the prices, adjustable noose hanging over theheads
“Increasing Delinquencies
As home prices soared at double digit rates during the recent, red-hot housing market, many stretched themselves financially to purchase a home. The use of lower-interest rate ARMs, interest-only mortgages or option-ARMs that allowed home buyers to choose how to pay each month soared during the same period. According to the Mortgage Bankers Association of America, ARMs now represent 25 percent of the more than $8.5 trillion in outstanding loans. ”
Uhhhhhhhhhhhhhhh…. that’s stable.
Jon Lansner at OCR is on a roll.
He has a new blog posting with this study from Wharton and Citigroup (high net worth division).
http://knowledge.wharton.upenn.edu/papers/download/031506_RealEstateInvesting.pdf
This is an excellent white paper, sunsetbeachguy.
they say
bankers chasing market share and compensation
bonuses tend to underprice risk in a systemic fashion
with potentially disastrous consequences.
Regarding the Lasner blogs. It sure looks like the Realtor and that real estate statistician gave up after being pummeled by you guys. Good job AH and sunset beach guy!
Yeah, it is almost too bad. I tried to be civil but there are some knucklehead bears that get paired with the knucklehead bulls.
That blog needs fresh cannon fodder to keep the discussion going.
The RE bulls will just get real quiet when they get it.
For So Cal Rich Toscano’s website is hands down the best bubble primer.
http://piggington.com/bubble
Funny thing is…after all that attacking Lansner that I did…I think he just really needed some support. Maybe I mistook what I thought was his leaning toward RE for what was really- disgust? Frustration? Whatever the case, his reporting is getting better and better and better.
Seems like he’s gaining strength.
I posted the link to http://bubbletracking.blogspot.com over there today.
Maybe he’ll refer to that at some point?
Me too Auction heaven… he is sticking his reputation out on the line…. again
I think ah jus peed maself…
“Walking Away…
Sometimes, however, that may not be enough and the worst can still happen. Heidi negotiated terms with her bank, but she and husband still could not afford the higher monthly payments.
They put their dream home on the market, but as many of her neighbors had also lost their residences to foreclosure, housing prices had dropped. Their home would have sold for less than their outstanding loan. After several months on the market with no offers, she and her husband moved to a rental home.
“I finally, just, you know, had to make my peace with the fact that we were going to lose our house, so that’s what we did and we just had to walk away.”
She may still owe money on the property, and she knows that her credit will be damaged. She only hopes she’ll be able to own a home again, but with one noticeable difference.
“I would not get an adjustable-rate loan,” she promised. “I would get a conventional loan, a fixed loan.”
“I loved my home, and I felt very comfortable here, and my dogs loved it here, and my husband loved it here and this was my home and now we’ve lost it,” she said, trying not to get emotional as she stood in her former kitchen.
No arrogant flippers these, just financial unsophisticates coming in at the top. Bubble victims. I feel sorry for them. (They did try for quite a ‘first home’, though.)
Good point AJH,
Sometimes you feel sorry for ‘em, but when they purchase the biggest house with all the bells and whistles (on a first house), it’s hard to say that they were completely oblivious.
It’s a theme we’re seeing for many years now… folks “think” they are rich becuase they have “equity” (paper wealth) and that money is so cheap, why not get the best.
Even the kids these days have the best of the best of everything, it seems. Cell phones, BMW’s (when we used to drive the rattletraps we could afford with cash, etc.)…
Don’t get me wrong- I’m not bitter, just observing that the greater American people are having a harder and harder time “living within means”. Living financially responsibly seems to be a rare bird these days.
I read this story and was thinking the same thing. Based on the mortgage payement she went into, the house must have cost north of $350K which is huge in north Dallas (property taxes are >3%). Starter homes there are only $100K. It’s ridiculous for a first time home owner to be buying their “Dream Home”. A lot of these “I want it all and I want it now” generation are learning a valuable lesson. My wife and I (both college grads) saved for 10 years before we considered buying a home. At 35, I bought my first home with the full 20% down, etc. and was ready to ride out any storm. At this point we even were ready to let my wife quit working to become a full time stay at home mom. Some people don’t do any planning and want it NOW, NOW, NOW. (…but then again, maybe I have it all wrong. Maybe the new paradigm should be “he who dies with the most debt wins.” Bill collectors can’t come after you when you are dead.).
I think you’ve nailed one of the biggest problems with American culture. Instant gratification is completely at odds with sustainability. So how can we use the upcoming housing implosion to help address this issue?
I agree with you. Too many want to start out at the top. Our starter house was just that. Old shag carpet (I realize that it is now back in) coppertone & avocodo appliances, no AC (in D.C.!) I could keep going.
You need to “start” somewhere affordable and work your way up to that dream home.
So much for Bernanke worrying about a falling dollar:
http://news.yahoo.com/s/nm/20060322/bs_nm/economy_bernanke_dc_8;_ylt=Alv4bQNPtDBwcWHKTQ5xoHpv24cA;_ylu=X3oDMTA2ZGZwam4yBHNlYwNmYw–
Ladies and Gentlemen…
‘The Housing Bubble’ has now become…
PRIME TIME!
What a day it’s been. My head’s spinning.
I called it a week ago in my predictions .
still the same question, almost answered
9.8% in RE now how many in 1990 ?
5% if we adopt the UK model.
Hmm I wonder if ORANGE COUNTY is an overheated market….HELLO MCFLY???
So when are we having our party Ben? Is it time yet?
We can invite Lansner
Melody,
Although it does look quite good for us, I’d suggest we hold off the celebration ’til we know **for a fact** that the bubble has popped. That would be sometime in October/November, if you ask me. We need to know for sure that the PTB will not pull another rabbit out of their hats (ever more exotic loans — like the “no payment for 12 months” that I saw the other week).
Can’t wait until we get to call it “finally over”!!!!!
Melody:
I owe you an apology. You suggested using OCRs blog to spread the message.
I was kind of a jerk and said that they don’t deserve the traffic.
I was mistaken and it is fun to spread the word over there.
It would probably give other posters a break from OC centric comments.
I think our involvement helped. Since when hasn’t it? You have to get involved in things you’re passionate about.
Not even close.
To show my appreciation for this blog I mutilated a childhood story from years ago, I call it: Little Red Riding Flipper.
The Realtor, seeing her come in, said to her, hiding himself under the bedclothes, “Put the no doc and the little down payment upon the desk, and come get into bed with me.”
Little Red Riding Flipper took off her clothes and got into bed. She was greatly amazed to see how her grandmother Realtor looked in her nightclothes, and said to her, “Grandmother, what big ARMs you have!”
“All the better to squeeze you with, my dear.”
“Grandmother, what big appraisals you have!”
“All the better to borrow with, my child.”
“Grandmother, what big appreciation tales you have!”
“All the better to trick you with, my child.”
“Grandmother, what big houses you have!”
“All the better to entice you with, my child.”
“Grandmother, what big repossessors you have got!”
“All the better to kick you out in the street with.”
And, saying these words, this wicked wolf fell upon Little Red Riding Flipper, and ate up all her assets.
Classic
Melody…
Maybe if all of us, and Ben, work hard enough…
…Maybe we can stage an Intervention…
…and save David DiaLereah from getting himself killed by his realtors.
After that, if we show him ‘the light’…
…Maybe he can come to the party, too?
Or is he too far gone?
OT
This just showed up on Yahoo News:
Homeowners Stretched Perilously
http://news.yahoo.com/s/csm/20060321/ts_csm/amaxedout
BayQT~
And another:
Housing Woes
http://abcnews.go.com/Business/story?id=1750615&page=1
BayQT~
Just watched the premier of Real OC Housewives on Bravo. Reality TV. Display of extremely self absorbed shallow materialists. One of the participants is a mortgage broker, he drives a Hummer. The show could be good to use as a baseline of the OC lifestyle to use as comparison to say 3 years from now?
My wife and I watched it, too.
Those people are stretched thin, to say the least.
If they shot that show last summer, we won’t see them sweating like they probably are right now.
Can you even imagine how many people in the OC saw ABC News tonight and said…”Oh shit.”????
It sure will be an interesting day at the beach tomorrow.
I can’t wait to go to work.
OT. Here is the latest post on yahoo, regarding Boston’s troubled RE market.
http://news.yahoo.com/s/csm/20060321/ts_csm/amaxedout
LOL! Great bear minds think alike. I just posted that one 2 posts above.
BayQT~
Oh man, you guys should the comments on that article. There are some really defensive housing bulls in there. They are clueless.
Yes, PLease do not take the ARM, YOU WILL SURELY GET SCREWED.
Bloggers embracing Ben Bernake of the FED and John Lanser from the OC Register. Never thought I’d see it! Denial is over and anger is moderated. Great start to the finish(ing).
Yeah it is a watershed moment in the bubble.
I watch Ladera Ranch and though I wish there were more reductions, wwe don’t need more like this one:
54 Platinum Circle, MV 92694
I hope the link works, but they reduced their asking price by $1!!! I think the Terramore village is cool, but I’m not going to pay the same price for a condo as I could for a sfr (both way overpriced, of course) in another Ladera neighborhood.
Is this crazy? Is it a sign for the showdown between buyers and sellers still yet to come. Please guys, tell me that we won’t have to move to Nashville.
hopper,
that thing is disgusting… I would not buy it for 100,000. And then dropping it by one dollar… please!!!!
The Hopper
If you are looking for a house you should consider Foothill Ranch instead of Ladera Ranch. Just a thought.
We want to move in 07 and right now are thinking about buying land in the canyon and building a place of our own. I shudder at the thought of living in a stucco box but I watch ladera because at least some thought has been put into Design and everything is shiny and new. As much as I don’t want to live 4 inches from my neighbors, my kids will probably want to live on the same street as their friends…
Very promising! Just another 300,000 to 400,000 reductions like this one, and we’ll be in the ballpark!
I know Im coming in late to the discussion, but wanted to correct the first post on this thread. My calculator shows that that the equity withdrawls amount to around $6500 per household, not the $85,000 per household listed in the first post to this thread. 6.1 Billion divided by 935,000 households (per 2002 data). I thought that number seemed waaay to high, so I checked the numbers.
It was 72,000, if I recall, making equity withdrawals within the year referenced.
6,100,000,000 / 72,000 = $84,722 per household
Let’s hope they didn’t spend it all.
I just wanted to point out that it made it sound like that was the average per household. The 85k is the average of those that withdrew equity.
Here’s what it says:
“For example, 72,000 Orange Countians last year took out $6.1 billion worth of home-equity loans, according to DataQuick.”
Or think of it this way:
In only one year, nearly 1 in 10 Orange County households withdrew $85,000 in home equity.
I posted this on the OCR blog. I am an appraiser in OC. I thought you guys might want to chew on these facts a bit. Notice the Coto de Caza numbers. By the way, data pulled from Tempo MLS, NDC data and RealQuest. I also drove the properties, infact appraised comparables of these. There is much of this out here in OC, yes even in Ladera, there are pockets where prices are in REAL declines from mid 2005 and some from mid 2004.
Ok guys, this is getting rediculous (sorry for spelling). You want facts? Its my job to report facts. You wont read this in any paper thats for sure. And I’m sure these previous buyers are having heart attacks right about now, assuming they know the FACTS, no realtor spin.
Aliso Viejo-
15 Mondrian (contracted on 8/8/05 sold 635k)
15 Mondrian (contracted again on 2/18/06,
sold 632k.) (as you can see this is a small decline, but its bigger than you think considering the sap who bought this place last summer had zero down, typical)
6 Ambrose (contracted on 10/16/05, sold 621k.)
same model as above, I still dont see appreciation.
You say you want more???
Coto De Caza:
22 Via Andorra (contracted on 5/9/05 sold 970k, guess what, zero down) But wait, it gets better…
92 Via Andorra (contracted 8/24/05, sold 905K)
54 Via Andorra (contracted 2/19/06, sold 839k, ouch that has got to hurt, oh yea, zero down also) Keep in mind, these homes are all model match homes with similar locational influences.
But it gets even better.
I dedicate this one to all you realtors who farm the Coto market:
16 Via Candelaria (contracted on 4/1/05,
sold 779k)
64 Via Candelaria (contracted on 1/14/06,
sold 720k)
78 Via Candelaria (contracted on 1/4/06,
sold 710k). These 3 on Candelaria are also the exact same models, with the exact same view influences.
Now try telling the previous buyers of 15 Mondrian, 22 Via Andorra and 16 Via Candelaria that real estate is a sure bet.
You fools can believe the hype that realtors and brokers spit out, but remember, the only friend you got in this market is the appraiser you hire yourself to report the facts.
Game, set, match.
Orange County comments:
http://www.xanga.com/russwinter
OC Resident,
Great post. Keep them coming. Got anything on Newport Beach?